U.S. President Donald Trump’s reciprocal tariff announcement has turned out to be an absolute googly. Instead of targeting countries with high tariff walls or even non-tariff walls, his regime has taken a huge shortcut. It has targeted countries which have huge trade surpluses with the U.S. and who also export a great deal to the U.S.Here’s how the tariffs have been worked out for each country. The U.S. administration has taken the trade deficit of country X and divided it by the exports of that country to the U.S. The resultant number, the administration says, is the tariff imposed by the country on U.S. goods.
According to the U.S. administration, this number represents “the combined rate of all the tariffs and non-monetary barriers such as currency manipulation imposed by country X”, or as a White House official said this number “encapsulates the sum total of all cheating” by country X.
Here’s a sample list of Asian countries and their tariff calculation by the US
CountryImports from U.S. ($bn) (B)Exports to U.S. ($bn) (C)Trade Surplus with U.S.($bn) (D)Tariff (D/C) (%) (E)Tariff (%) Imposed (E/2)India428746.75327Vietnam13.1136.5123.59146Sri Lanka0.3683.02.68744Bangladesh2.28.46.27437Thailand17.763.345.67236Indonesia10.228.117.96432Malaysia27.752.524.84724Philippines9.314.24.93517South Korea65.5131.5665126
*Trade numbers are as of 2024
Source: U.S. govt data, CNBCTV18 calculationsAmong the larger trading partners, the tariff on the EU stands at 20%, Japan at 24%, and China at 34%. However, for China, when adding the previous 20% tariffs, the total tariff rises to 54%. Singapore and Australia, both of which have a trade deficit with the U.S., face a minimum tariff rate of 10%.World over economists, policymakers, business persons and market mavens are shocked at the U.S. administration’s simplistic and brazen conclusion that if a country doesn’t import much from the U.S. but sells much of its goods to the U.S. it must be indulging in manipulation and cheating.The calculations of all rational people that the U.S. tariffs would be based on a country’s tariffs and its VAT have been thrown to the winds. The entire calculation appears to be driven to punish those who don’t buy enough goods from the US but sell more to that countryMost experts writing on X or speaking on television channels argued that the punishing tariffs were meant to arm-twist countries to reduce their tariffs.However, the above table makes it evident that the U.S. is not concerned with a country’s tariff levels. Its primary objective is to compel nations to purchase more U.S. goods and reduce their trade deficit with the U.S. For instance, here is a table of the import tariffs imposed by a sample set of countries.Effective weighted average tariff with the U.S. (Pre-April 2)
CountryCountry’s Avg Tariff Rate on U.S. Goods (%)U.S.’s Avg Tariff Rate on the Country’s Goods (%)Tariff Rate Differential (%)India9.53.06.5Vietnam2.84.6-1.8South Korea1.10.01.1Indonesia4.24.10.1Thailand6.20.95.3According to this table, Vietnam should not have been subjected to tariffs at all or, at worst, should have faced the minimum 10% tariff. However, the U.S. is not concerned with tariff levels. Even if Vietnam reduces its tariffs to zero, it will not make a difference.What would help is if Vietnam significantly increases its purchases of U.S. goods. The country has a trade deficit of $123.5 billion, while its GDP is just $430 billion. To reduce the tariff to the mandatory minimum of 10%, Vietnam would need to buy U.S. goods worth 30% of its GDP—an impossible demand.For India, too, reducing tariffs may not be sufficient. The country would have to purchase U.S. goods worth $40 billion annually to bring down tariffs on its exports to the U.S. to 10%.What could be the consequences of this blatant economic pressure by the U.S.? Here are some logical extrapolations:Stock market movementIndian stock indices, after an initial decline of over 1% in early trade, rebounded sharply, led by gains in pharmaceuticals, textiles, and banking stocks. Traders believe that Indian pharmaceutical exporters are relatively safe for now, as Trump has exempted this sector. However, it remains unclear whether all pharmaceutical products are exempt from tariffs.
In the textile sector, brokers suggest that India’s competitors — Vietnam, Bangladesh, and Sri Lanka — are facing significantly higher tariffs, making them less competitive. This could strengthen India’s position in the U.S. market. However, this assumption may be premature, as it is uncertain whether U.S. consumers will accept a 26% price hike on apparel. Retailers may have to absorb some of the cost through margin reductions, and higher prices could impact demand.Meanwhile, Goldman Sachs has lowered its GDP growth forecast for India in 2025 by 30 basis points, reducing it from 6.4% to 6.1%.Global slowdown and its impact on IndiaThe bigger challenge for India and other economies will be the expected global slowdown. As auto, steel, and aluminium exporters from Europe, along with textile and electronics exporters from Asia, face declining volumes and shrinking margins, global GDP is likely to take a hit. India’s exports may struggle to maintain their 10% growth rate, which has been the norm over the past decade.Challenges for export-oriented Asian economiesExport-driven Asian countries face a difficult outlook. Vietnam, for instance, has lost an export market equivalent to one-third of its GDP. While the country will attempt to navigate the situation, avoiding a severe hit to its export-led growth will be challenging. Likewise, albeit with lesser intensity, for Taiwan and Korea.Goldman Sachs has significantly cut GDP growth forecasts for all export-oriented Asian economies. China’s forecast remains at 4.5%, but with a downward bias. Japan and Australia have seen minor forecast revisions.But the following table tells the tale of the othersGoldman Sachs GDP forecasts for Asian countries (2025)
CountryNew Forecast (%)Previous Forecast (%)Bloomberg Consensus (%)Vietnam5.66.86.7South Korea1.01.51.6Taiwan1.62.63.0Malaysia3.84.54.7Thailand1.52.42.8Hong Kong1.72.22.2India6.16.46.6
Europe’s economic strugglesEurope is also expected to suffer due to high tariffs on its auto and steel exports to the U.S.The impact was evident in the sharp decline of Tata Motors’ stock, as the company exports 23% of its Jaguar and Land Rover vehicles to the U.S. Europe’s deficit-led spending may make up somewhat for the lost markets in the U.S. but the impact of the fiscal spending will take a while to show.Decline in global investmentsA steep decline in global investments is also anticipated, as businesses scale back expansion plans due to uncertainty over U.S. tariff policies. The arbitrary imposition of tariffs by the world’s largest economy makes it difficult for companies to assess cost-benefit scenarios for any region. Neelkanth Mishra, economist at Axis Bank, told CNBC-TV18 that he expects a 1% reduction in global GDP purely due to the expected collapse in investments caused by business uncertainty.The U.S. and short-term stagflation risksIn the short term, the U.S. may face a stagflationary trend, with rising inflation due to higher tariffs and slower growth as consumer and business confidence weakens.The end of the post-war global trade systemBeyond the immediate effects, the larger structural shift is that the post-World War II global trade system has effectively been dismantled by the U.S. It remains uncertain how the new trade order will evolve.Also the U.S. as the world’s largest market has upped its tariff wall from 2% to 25%. Most manufacturers may still not want to set up factories in the U.S. given the far higher labour and other costs in that country. So the resultant recessionary trends may persist.To be sure this is a man-made disruption and one man can lessen the damage at a whim. Many market watchers do interpret the US move as a maximalist strategy to frighten all countries to the negotiating table and threaten them into granting large markets to U.S. goods.The dominant belief is that the tariffs will eventually be negotiated lower. But for the moment 2025 clearly looks like a year lost.
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